Money Supply and Money Demand Curve

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Presentation transcript:

Money Supply and Money Demand Curve Student Name ECON2105-B “The Federal Reserve said it will purchase $200 billion in securities…

Money Supply and Demand before Fed decision Nominal Interest Rate MS EQNIR MD EQ QM Quantity of money (trillions of dollars) Baseline money supply and money demand before the Federal Reserve decided to purchase securities on the open market.

Money Supply and Demand after Fed decision MS0 MS1 Nominal Interest Rate Federal Reserve will put more money into the open market by purchasing securities. EQ NIR0 EQ NIR1 MD EQ QM1 Quantity of money (trillions of dollars) The influx of money from the Fed will increase the Money Supplied. In the short term, this causes a decrease in the nominal interest rate. EQ QM0 This decrease in the nominal interest rate causes the quantity of money demanded to increase.